NEW YORK, July 31 (Reuters) – Express Scripts Holding Corp
, the largest U.S. pharmacy benefit manager, said on
Friday that it would exclude about 20 new medications in 2016
from insurance coverage, including two diabetes drugs and a
weight loss drug.

For the past several years, Express Scripts has been
excluding medicines from its coverage list, a reflection of
concern about cost to its health insurers and corporate
customers, it says. The 2016 list includes 80 drugs or medical
items.

Express Scripts said it can negotiate lower drug prices when
it excluding drugs from its coverage list, which determines
whether tens of millions of people with private insurance can
easily use an insurance co-pay to buy their medicine.

One of the drugs Express Scripts is excluding for 2016 is
AstraZeneca Plc diabetes treatment Onglyza, which had
sales of $391 million in the first half of 2015. AstraZeneca was
not immediately available for comment.

It also said it would exclude Qysmia, a weight loss drug
made by Vivus Inc. Vivus has struggled to gain insurer
reimbursement for the drug and on Thursday said it would cut
about 60 jobs as part of a restructuring. Company
representatives were not immediately available for comment.

The 2016 formulary continues to exclude Gilead Sciences
Corp’s pricey hepatitis C treatments Harvoni and
Sovaldi in favor of its nearest competitor, AbbVie Inc’s
Viekera Pak. Sovaldi set off the debate about expensive
drugs in 2014 with its $1,000-per-pill regimen.

Express Scripts said earlier this week that it would cover
the industry’s latest pricey and innovative new drug, Regeneron
Pharmaceutical Inc’s and Sanofi SA’s Praluent
to treat high cholesterol. Later this year, once a competing
drug from Amgen Inc is approved, its pharmacy committee
will review if it will add both drugs to its formulary.

Express Scripts added back about 10 drugs that had been cut
from the list in 2015, saying it negotiated better prices with
their manufacturers. It said that in 2016, the cuts will save
its customers $1.3 billion, up from the $1.05 billion it
estimates in savings for 2015. There are about 4,000 drugs on
the market, it said.

(Reuters) – Health insurer Cigna Corp, which agreed last week to be bought by Anthem Inc for $47 billion, said on Thursday that medical services use was low in the second quarter, helping to keep costs in check and beat Wall Street profit estimates.

Cigna’s report of a continued low utilization trend backs up a growing industry view of this closely watched component of insurer profitability. Anthem made similar comments on Wednesday, when it reported better-than-expected quarterly earnings.

Health insurers have benefited from low medical services use during the past five years as the weak economy has kept down doctor visits and hospitalizations and membership growth has helped increase revenues.

But the rate of overall health spending has begun to increase and medical use is expected to rise more as the economy improves. The national healthcare reform law, also known as Obamacare, has contributed to the increase as millions of people gained health insurance coverage in the past two years.

That is driving insurers to consolidate to build scale to help keep costs down and negotiate better deals with doctors and hospitals.

“The reason why there is so much consolidation is because utilization and the cost trend overall will go up, which will pressure the profitability for these companies long term,” Morningstar Research analyst Vishnue Lekraj said.

Aetna Inc agreed to buy smaller rival Humana Inc in early July, just weeks before Anthem and Cigna reached a deal.

The mergers are expected to face antitrust scrutiny as regulators consider their effect on insurance premium rates. The concerns have kept Cigna shares far from Anthem’s offer price of more than $183.

Cigna shares dipped 0.4 percent at $144.81 on Thursday.

Cigna Chief Executive Officer David Cordani said on CNBC on Thursday that the companies were already talking to state and federal regulators. “We will fully engage with state leaders and federal leaders and those conversations have already started,” Cordani said.

Cigna said its ratio of medical claims paid as a percentage of premiums taken in, or MCR, was 77.5 percent for its commercial business and 84.4 percent for its government business. It expects medical costs to rise 5 percent to 6 percent in 2015.

Net profit rose to $588 million, or $2.26 per share, for the second quarter, from $573 million, or $2.12 per share, a year earlier.

Excluding items, Cigna earned $2.55 per share, beating the average analyst estimate of $2.31, according to Thomson Reuters I/B/E/S. On Friday when it announced the Anthem deal, Cigna said second-quarter earnings would be at least $2.50 per share.

Cigna manages insurance plans for large companies and sells health plans to individuals on government exchanges created under the U.S. Affordable Care Act. It also manages government Medicare and Medicaid plans.

Premiums and fees in Cigna’s commercial and government businesses rose 10 percent in the second quarter, boosted by the addition of 524,000 customers.

Revenue rose about 9 percent to $9.49 billion, just below the average analyst estimate of $9.53 billion.

(Reporting by Caroline Humer in New York and Amrutha Penumudi in Bengaluru; Editing by Simon Jennings and Jeffrey Benkoe)

July 30 (Reuters) – Health insurer Cigna Corp, which
agreed last week to be bought by Anthem Inc for $47 billion,
said on Thursday that medical services use was low in the second
quarter, helping to keep costs in check and beat Wall Street
profit estimates.

Cigna’s report of a continued low utilization trend backs up
a growing industry view of this closely watched component of
insurer profitability. Anthem made similar comments on
Wednesday, when it reported better-than-expected quarterly
earnings.

Health insurers have benefited from low medical services use
during the past five years as the weak economy has kept down
doctor visits and hospitalizations and membership growth has
helped increase revenues.

But the rate of overall health spending has begun to
increase and medical use is expected to rise more as the economy
improves. The national healthcare reform law, also known as
Obamacare, has contributed to the increase as millions of people
gained health insurance coverage in the past two years.

That is driving insurers to consolidate to build scale to
help keep costs down and negotiate better deals with doctors and
hospitals.

“The reason why there is so much consolidation is because
utilization and the cost trend overall will go up, which will
pressure the profitability for these companies long term,”
Morningstar Research analyst Vishnue Lekraj said.

Aetna Inc agreed to buy smaller rival Humana Inc
in early July, just weeks before Anthem and Cigna
reached a deal.

The mergers are expected to face antitrust scrutiny as
regulators consider their effect on insurance premium rates. The
concerns have kept Cigna shares far from Anthem’s offer price of
more than $183.

Cigna shares dipped 0.4 percent at $144.81 on Thursday.

Cigna Chief Executive Officer David Cordani said on CNBC on
Thursday that the companies were already talking to state and
federal regulators. “We will fully engage with state leaders and
federal leaders and those conversations have already started,”
Cordani said.

Cigna said its ratio of medical claims paid as a percentage
of premiums taken in, or MCR, was 77.5 percent for its
commercial business and 84.4 percent for its government
business. It expects medical costs to rise 5 percent to 6
percent in 2015.

Net profit rose to $588 million, or $2.26 per share, for the
second quarter, from $573 million, or $2.12 per share, a year
earlier.

Excluding items, Cigna earned $2.55 per share, beating the
average analyst estimate of $2.31, according to Thomson Reuters
I/B/E/S. On Friday when it announced the Anthem deal, Cigna said
second-quarter earnings would be at least $2.50 per share.

Cigna manages insurance plans for large companies and sells
health plans to individuals on government exchanges created
under the U.S. Affordable Care Act. It also manages government
Medicare and Medicaid plans.

Premiums and fees in Cigna’s commercial and government
businesses rose 10 percent in the second quarter, boosted by the
addition of 524,000 customers.

Revenue rose about 9 percent to $9.49 billion, just below
the average analyst estimate of $9.53 billion.

(Reporting by Caroline Humer in New York and Amrutha Penumudi
in Bengaluru; Editing by Simon Jennings and Jeffrey Benkoe)

July 29 (Reuters) – Health insurer Anthem Inc,
which plans to buy rival Cigna Corp for $54 billion, on
Wednesday said medical costs, particularly in its Medicaid and
Medicare businesses, were at the low end of expectations and
helped boost second-quarter profit.

Anthem raised its profit outlook for 2015 and said it
expects health spending to increase at the lower end of a range
of 6.5 percent to 7.5 percent this year. It also said that a key
financial measure of medical costs fell during the quarter.

Health insurers closely manage costs to contend with a
constant rise in medical spending. Cost increases had been held
back for many years by the weak economy, but began picking up in
2014 with the improved economy and as the national healthcare
reform law extended insurance to millions more people.

A few months ago, the largest U.S. insurers began scrambling
to line up merger partners that would give them leverage to
contend with the trend and negotiate lower prices with medical
providers.

Consolidation has heated up across the healthcare industry,
including among hospitals, doctor groups, pharmacy benefit
managers, pharmacies and drugmakers.

On July 3, No. 3 health insurer Aetna Inc said it
would buy rival Humana Inc and Anthem on Friday said it
would acquire Cigna to create the No. 1 U.S. health insurer with
53 million members.

Anthem, which operates Blue Cross Blue Shield plans in more
than a dozen states, said on Wednesday that spending on medical
claims as a percentage of premiums fell to 82.1 percent from
82.7 percent a year ago. That is about 30 basis points better
than Wall Street estimates, according to Leerink Partners
analyst Ana Gupte.

Anthem is the first insurer to report earnings since
UnitedHealth Group Inc two weeks ago missed analyst
expectations for that key ratio, a harbinger of cost increases.

“(Anthem’s) loss ratios came in very favorably. That’s a big
plus considering there were some concerns about the UnitedHealth
report,” Gupte said.

Anthem shares were up 0.2 percent at $154.46.

REVENUE TOPS EXPECTATIONS

Anthem’s net income rose to $859.1 million, or $3.13 per
share, from $731.1 million, or $2.56 per share, a year earlier.
Revenue increased 8.3 percent to $20.02 billion, topping
analysts’ expectations of $19.63 billion.

The company cited strong growth in its government Medicaid
and Medicare businesses, where revenue rose 25.7 percent.
Medicaid membership increased 11 percent.

Medicaid enrollments began to increase in earnest starting
in July of last year as the expansion of Medicaid coverage for
the poor kicked in, Anthem Chief Financial Officer Wayne DeVeydt
said during a conference call.

Anthem expects 2015 adjusted net income to be more than $10
per share, up from its previous forecast of more than $9.90.

Analysts expected full-year earnings of $10.11 per share,
according to Thomson Reuters I/B/E/S.

Excluding items, Anthem earned $3.10 per share in the second
quarter, well above the average analyst estimate of $2.77.

(Reporting by Caroline Humer in New York and Amrutha Penumudi
in Bengaluru; Editing by Anil D’Silva and Jeffrey Benkoe)

Anthem, which operates Blue Cross Blue Shield plans in more than a dozen states, said on Wednesday that spending on medical claims as a percentage of premiums fell to 82.1 percent from 82.7 percent a year ago. That is about 30 basis points better than Wall Street estimates, according to Leerink Partners analyst Ana Gupte.

Anthem shares were up 0.3 percent at $155.69. Anthem is the first insurer to report earnings since UnitedHealth Group Inc (UNH.N: Quote, Profile, Research, Stock Buzz), which two weeks ago missed analysts’ expectations for that key ratio, a harbinger of cost increases.

REVENUES TOP EXPECTATIONS

Anthem’s net income rose to $859.1 million, or $3.13 per share, for the second quarter, from $731.1 million, or $2.56 per share, a year earlier. Revenue increased 8.3 percent to $20.02 billion, topping analysts’ expectations of $19.63 billion.

The company cited strong growth in its government Medicaid and Medicare businesses, where revenue rose 25.7 percent, helped by an 11 percent rise in Medicaid membership.

The expansion of Medicaid coverage for the poor under the national healthcare reform act began to boost membership in earnest starting in July of last year, Anthem Chief Financial Officer Wayne DeVeydt said during a conference call.

Anthem expects 2015 adjusted net income to be more than $10 per share, up from its previous forecast of more than $9.90. That reflects a slowdown in share buybacks related to the Cigna purchase.

Analysts expected full-year earnings of $10.11 per share, according to Thomson Reuters I/B/E/S.

Excluding items, Anthem earned $3.10 per share in the second quarter, well above the average analyst estimate of $2.77.

NEW YORK (Reuters) – The U.S. government expects healthcare spending to increase by 5.8 percent annually on average from 2014 through 2024 as more Americans gain insurance coverage and the improved economy drives patients to visit doctors and hospitals.

The aging population’s higher healthcare costs will also push health spending higher starting in 2019, according to a study from the Office of the Actuary at the Centers for Medicare and Medicaid Services, part of the U.S. Department of Health and Human Services.

Prior to 2014, healthcare spending rates were running around 4 percent per year as the weak economy made people cut back on medical care that they could not afford.

That trend reversed in 2014, when the national healthcare reform law, often called Obamacare, extended insurance to millions of Americans through the expansion of the Medicaid program and new individual insurance plans.

The insurance expansion, as well as the price of new hepatitis C medicines that were introduced last year, contributed to a projected rise of 5.5 percent in 2014 in healthcare spending, the study found.

Average projected 2015 spending will decline slightly to 5.3 percent because the number of newly insured will ease compared with 2014 and because of lower hepatitis C drug prices this year, the study found.

Projected spending for the 2019 to 2024 period will increase to 6.2 percent per year on average due to the aging population, which will increase the number of people covered by Medicare, the insurance program for elderly people and the disabled. The aging population will also increase costs for people with Medicaid coverage, government researchers said.

People enrolled in the Medicare and Medicaid programs have higher medical costs than average Americans.

Medical prices are expected to rise above 2 percent per year starting in 2016, the first increase since 2011 and after years of historically low levels. That is partly due to expectations for higher healthcare wages related to the stronger economy.

Changes in private insurance that have shifted the cost of healthcare to individuals from insurers and employers through higher deductibles and co-pays will hold back further spending increases, the study found. Cuts in payments to doctors from the Medicare program will also hold back costs from rising further.

The government’s annual study, published in the August edition of the Health Affairs journal, increased its 10-year projected spending increase to 5.8 percent from the 5.7 percent it predicted in last year’s study.

NEW YORK (Reuters) – Allergan plc CEO Brent Saunders is ready to put the $36 billion his company will net from the sale of its generics business to Teva Pharmaceutical Industries Ltd to work, possibly with another large, “transformational” merger.

The readiness for a new transaction just after the Teva deal was announced on Monday represents what Saunders calls a strategy to remain nimble and open to opportunity as the healthcare sector remakes itself.

Saunders has already shown a penchant for quick deal-making. Just last year, he helped orchestrate the $25 billion sale of Forest Laboratories Inc, where he was CEO, to Actavis Plc.

As head of Actavis, he then sealed a $66 billion purchase of Botox-maker Allergan, beating out rival suitor Valeant Pharmaceuticals and its acquisition partner, hedge fund billionaire William Ackman.

The latest deal had just closed in March and Saunders was busy integrating the two companies under the Allergan name. At the time, he did not consider unloading the generics assets of Actavis.

“While I had a different strategy a few months ago, the thing that sets us apart … is our strategy to be nimble,” Saunders said in an interview.

Saunders now plans to use the proceeds from its $40.5 billion asset sale to Teva to increase the size of existing drug businesses, expand into new therapy areas and pursue larger deals.

He declined to discuss any specific targets, a list Wall Street that analysts speculated may include Biogen Inc, AbbVie Inc and Amgen Inc.

“Clearly we are watching many companies – we have been for some time – but what has changed is our timeline for being able to execute has accelerated, if the opportunity presents itself,” Saunders said.

The $40.5 billion cash-and-stock sale of generic drugs business to Teva is expected to close in the first quarter of 2016.

That will essentially “reload” Allergan’s balance sheet for more acquisitions, Saunders added. When asked if Allergan planned to spend the cash within 18 months, he replied that the company would, as long as it could maintain its investment-grade credit rating.

CONSOLIDATION AHEAD

Saunders said his change of direction for Allergan came only a few weeks ago when Teva CEO Erez Vigodman called to make an offer. Vigodman had already approached Actavis earlier in the year, but the company was not interested at that time.

“To be fair, I didn’t think it was a good idea to sell it until Erez called me and put a compelling offer on the table,” Saunders said. “It caused me to step back and think about the industry and the dynamics.”

The healthcare industry has consolidated in the past year, with pharmacies and distributors aligning through merger deals or purchasing agreements that give them more leverage over prices for generic drugs.

These deals, such as CVS Health’s purchases of Target Corp’s pharmacies and the Omnicare specialty pharmacies and distributor McKesson Corp’s purchasing agreement with pharmacy Rite Aid Corp, will force more consolidation among generics makers so they can compete, Saunders said.

Two of the largest U.S. health insurers – Humana Inc and Cigna Corp – have also agreed to be bought in the past month, signaling fresh pressure on prices, Saunders said.

Of the seven main therapeutic areas that Allergan will focus on after the generics sale, he said there are four with the strongest opportunities in terms of unmet medical care: aesthetics, eye care, central nervous system therapies and gastrointestinal therapies.

“If it were my $40 billion, I would probably do four or five deals in the $10 billion range, aiming for late-stage drug programs where you have some idea if the drug works,” Funtleyder said. If two of those deals panned out, “that would be a good use of capital.”

July 16 (Reuters) – UnitedHealth Group Inc, the
largest U.S. health insurer, on Thursday forecast higher profit
and said medical costs were under control, pushing off any
discussion about its role in a frenzy of insurer consolidation.

UnitedHealth is the first of the national health insurers to
report second quarter earnings amid dealmaking in the industry.
Aetna Inc and Humana Inc have recently struck a
deal, and Anthem Inc is in pursuit of Cigna Corp
. UnitedHealth has also been reported to have looked at
Aetna and Cigna.

Companies are having to adjust to the national healthcare
reform law, the Affordable Care Act, and have sought to cut
costs and grow larger to use size to negotiate better contracts
with doctors.

“We are well positioned across virtually all of the key
markets and…have plenty of scale across all our business
segments,” Chief Executive Stephen Helmsley told investors on a
conference call. “We are just going to continue to run our
business.”

UnitedHealth said medical cost trends remained controlled
and were consistent with management expectations. The company’s
medical loss ratio – or percentage of premiums paid out for
medical services – was 81.4 percent, a decline of 20 basis
points but 60 basis points higher than Wall Street estimates.

Shares fell about 1.8 percent after missing Wall Street cost
estimates. They recovered some ground as the company attributed
the shortfall to a miscalculation by the Street on the mix of
its business.

Executives said customer medical costs were higher for
Medicaid, Medicare and exchanges, where enrollment grew, than in
the commercial sector.

Disappointment that it did not announce a deal with its
earnings report may have influenced the shares as well.

“Certainly there has been speculation about what United is
doing, or saying to Cigna,” Leerink Partners analyst Ana Gupte
said.

The company said it expected medical spending to increase in
the lower half of a range of 5.5 percent to 6.5 percent. That
stable trend should enable it to accurately price insurance
plans and produce the earnings growth it has forecast, Mizuho
Securities healthcare analyst Sheryl Skolnick said.

The company reported a 12.6 percent increase in
second-quarter profit, and beat Wall Street expectations,
largely due to cuts in sales, general and administrative costs
and a better tax rate.

It raised its profit forecast for the full year to
$6.25-$6.35 per share from $6.15-$6.30 on revenue of about $154
billion. Analysts on average expect a full-year profit of $6.26
per share on revenue for $143.61 billion, according to Thomson
Reuters I/B/E/S.

UnitedHealth’s revenue grew 11 percent to $36.26 billion,
helped by its Optum business, which includes its technology and
pharmacy benefit management businesses.

Net income rose to $1.59 billion, or $1.64 per share, from
$1.41 billion, or $1.42 per share, a year earlier.

Analysts on average had expected a profit of $1.58 per share
on revenue of $35.85 billion, according to Thomson Reuters I/B/

(Reporting by Caroline Humer in New York and Vidya L Nathan in
Bengaluru; Editing by Don Sebastian, Bernadette Baum and Andrew
Hay)

NEW YORK/WASHINGTON (Reuters) – U.S. insurance regulators and state attorneys general are lining up to scrutinize Aetna Inc’s proposed $33 billion takeover of rival Humana Inc for potential harm to consumers, complicating what is already expected to be a tough and lengthy review by federal antitrust authorities.

Insurance commissioners in 18 states including Texas, Kentucky and Florida will study merger documents provided by Humana to determine whether the deal will harm competition and lead to higher insurance premiums or diminished access to healthcare providers, according to Reuters interviews with regulators and insurance experts.

At least three state attorneys general – in Florida, Mississippi and Massachusetts – said they will look at the proposed acquisition. Local politicians and medical industry groups such as the American Medical Association have also voiced concerns about the biggest deal ever in the U.S. health insurance industry.

The Department of Justice is taking the lead on the transaction and may ask for asset sales or challenge a deal in court. But the concerns of state insurance commissioners are likely to have added weight since health insurance is heavily regulated at the local level, antitrust experts said. State regulators are also expected to provide the DOJ with their own data on how the deal will affect insurance markets.

“The antitrust division makes the final decision on the competitive analysis but will take into account the information provided by the states,” said Andre Barlow, an antitrust lawyer at Doyle, Barlow and Mazard PLLC, who’s not involved in the inquiry.

The proposed acquisition comes after years of health insurance change driven by the politically divisive Affordable Care Act, often called Obamacare. Republicans say the new law has driven insurance costs higher and hurt consumers, while Democrats say it is insuring more people. Aetna and Humana have said that because the health insurance market is now more focused on consumers, being bigger will let them offer more competitive products.

When the nation’s largest insurer, UnitedHealth Group (UNH.N: Quote, Profile, Research, Stock Buzz), bought Nevada’s Sierra Health Services in 2008, the Nevada Attorney General and the DOJ both filed antitrust complaints and signed off on a settlement requiring UnitedHealth to divest administration and sales of Medicare Advantage plans for seniors and the disabled in two counties.

In 2004, California’s state regulator first rejected the acquisition of WellPoint Health Networks by Anthem. The companies challenged the move in court and eventually agreed to concessions, including putting $265 million towards California health projects that would benefit consumers.

The Humana purchase would create a company with more than 33 million customers in two-thirds of the United States. In individual states, their footprint is much bigger.

In a combined Medicare Advantage business, Aetna and Humana would have an 88 percent market share in Kansas, 80 percent in West Virginia, 58 percent in Iowa and 51 percent in Missouri, according to data from the Kaiser Family Foundation. In commercial insured plans, the new company would have more than a third of individual customers in Florida, Illinois and Kansas and 68 percent of Georgia, according to SG Cowen and SNL Financial.

Healthcare investors already have concerns over the Humana deal passing muster at the federal level, particularly after antitrust objections scuttled several other major transactions this year, including Sysco Corp’s proposed purchase of US Foods and Comcast Corp’s planned acquisition of Time Warner Cable Inc. They are also weighing the risk of another major health insurance merger being forged, possibly between Anthem Inc (ANTM.N: Quote, Profile, Research, Stock Buzz) and Cigna Corp (CI.N: Quote, Profile, Research, Stock Buzz). In that case, antitrust authorities would have to account for the market effect of both deals when raising any objections.

The value of Aetna’s cash and stock offer has dropped 10 percent since it was announced on July 3, as its share price fell over antitrust risk and other concerns. Aetna and Humana have said they view the regulatory process as “manageable,” targeting a deal closing in the second half of 2016 to account for a lengthy review. Aetna and Humana both declined to comment on antitrust issues for this story.

STATE BY STATE

California Insurance Commissioner Dave Jones plans to talk to antitrust authorities and other states through the National Association of Insurance Commissioners about the Humana deal’s impact on California, where he sees even their combined 5 percent share as an issue.

“I will be raising whatever concerns I have on behalf of California consumers,” Jones said in an interview. “I am generally concerned that historically health insurance company mergers have resulted in higher, not lower, premiums for consumers.”

For example, insurance premiums rose 13.7 percent in Nevada in the year after UnitedHealth Group’s acquisition of Sierra Health Services compared to health plans in a similar market that was not affected, according to a 2013 study published in the journal Health Management, Policy and Innovation.

In Kentucky, where Humana is based, Insurance Commissioner Sharon Clark said her department would work with federal regulators as they evaluate the transaction as well as conduct its own review, which could take six months to a year to complete.

Georgia state commissioner Charles Hudgens said in a statement he will perform an in-depth analysis of the proposed transaction’s effect on competition in the state. Texas, Illinois and Florida said they are also awaiting filings from Humana.

State attorneys general may also look at the deal, but often don’t disclose if they have opened an investigation.

In Connecticut, where Aetna is based, a spokesman for Connecticut Attorney General George Jepsen declined to comment on whether the office plans to probe the deal. “In Connecticut, the AG has the independent authority to look into mergers and to challenge them if it will lessen competition under the state’s antitrust laws,” Robert Blanchard said.

In Kentucky, where Humana is based, a spokesman for Attorney General Jack Conway said his office will look at the terms of the potential merger when they are released and determine if any action is necessary. In Florida, where Humana has 1.63 million customers, a spokeswoman for Florida Attorney General Pam Bondi said the state would look into the proposed merger for its effect on competition.

(Reporting by Caroline Humer and Karen Freifeld in New York, Susan Kelly in Chicago and Diane Bartz in Washington D.C. Editing by Michele Gershberg and John Pickering.)

NEW YORK (Reuters) – Humana Inc, fresh from
announcing an agreement to be purchased by larger rival Aetna
Inc, prompted new investor concerns about the $33
billion deal on Monday by lowering its 2015 financial forecasts.

The transaction announced on Friday is already expected to
face a tough review by U.S. antitrust regulators, particularly
if another major deal among health insurers emerges.

Humana, which has posted disappointing results for several
quarters in a row, said on Monday that members of its Medicare
Advantage plans for the elderly were using hospital services at
a higher rate than the company expected.

That increase could cut into already tight profit margins,
if Humana ends up paying more for medical claims than they
anticipated when setting monthly insurance rates.

Humana CEO Bruce Broussard said on a conference call with
investors that inpatient hospital admissions have not performed
in line with what the company had forecast. That contributed to
its decision to slash expected 2015 operating profits by more
than 8 percent. The company said it had taken the higher
Medicare Advantage hospital use into account when it priced
premiums for 2016.

“If you take the 8 percent downgrade of their earnings and
roll that through, that makes what Aetna paid pretty expensive,”
said Joel Emery, a portfolio manager at Tareo Capital Management
in New York. The degree to which Humana will boost Aetna’s
earnings in 2017 and 2018 is less than what some investors had
hoped for, he said.

Aetna’s offer of $125 in cash and 0.8375 Aetna shares for
each Humana share valued Humana at $230 per share. On Monday,
Aetna fell 6 percent to $117, bringing down the offer price to
$223 per share.

“Aetna shareholders have to approve the deal, and with such
a large premium, there is some outside chance that shareholders
will not approve it,” said Standard & Poor’s equity analyst
Jeffrey Loo.

Humana’s negative comments provided a silver lining to
hospital operators, who stand to benefit if patient admissions
rise and they are reimbursed for more of their services, said
Les Funtledyer, portfolio manager at ESquared asset management.
He owns shares of HCA Holdings and Universal Health
Services.

Consolidation among health insurers is also spurring
investors to seek out cheaper stocks in the healthcare sector,
such as hospitals, said Jessica Bemer, portfolio manager for
Snow Capital Management in Sewickley, Pennsylvania.

“If there are fewer insurers for healthcare investors to
own, that means they have to get their healthcare exposure
elsewhere,” Bemer said.